EXCLUSIVE: RestoPH warns stacking senior and PWD discounts could hurt restaurants

Industry says added costs could drive up prices and weaken demand.

The restaurant industry is warning that stacking senior citizen and PWD discounts on top of existing promotions could make some deals harder to sustain, with the added costs eventually affecting prices and customer demand.

The concern is being raised by the Restaurant Owners of the Philippines (RestoPH), a restaurant industry group with more than 250 members, as Congress considers proposals that could expand how mandatory discounts are applied.

One measure in the discussion is House Bill No. 16, which seeks to require the 20% senior citizen and PWD discounts, along with the VAT exemption, to be applied on top of promotional offers. The bill is only one of several measures being discussed by the industry, but it illustrates the pressure restaurants see building around mandated discounts.

RestoPH president David Sison told radar Business that the issue is less about opposing benefits for seniors and persons with disabilities than about how those benefits are funded and how additional discounts would affect restaurant economics.

“Promos are volume plays priced at razor-thin margins,” Sison said.

That is an important point in an industry where a promotion is rarely about simply cutting a price. The idea is to accept a smaller margin in exchange for more customers and more transactions.

A 50% bank promotion, a mall-wide offer, or a similar deal can be viable when the restaurant can make up for the lower margin through additional sales. But put another mandatory discount on top of that already-discounted price and the math starts looking very different.

Sison told radar Business that restaurants are already absorbing much of the cost of senior and PWD discounts because the government does not directly subsidize them. RestoPH’s position is that nobody is disputing the value of these benefits, but any expansion would add another cost for businesses to absorb.

“Ang tanong muna, sino magbabayad?” Sison said, referring to who should shoulder the additional cost of expanding the discounts.

RestoPH estimates that the total cost of senior and PWD discounts to the restaurant industry is about ₱40 billion a year. Sison said the estimate was based on industry revenues and the proportion of sales covered by the mandatory discounts. The figure is an industry estimate, rather than a government tally.

From tax credit to tax deduction

The way the senior citizen benefit is treated for tax purposes also changed over time. When the benefit was introduced in 1992, businesses could claim the cost as a tax credit. A 2004 change converted that into a tax deduction, meaning businesses could no longer recover the full value of the discount through their tax liability.

In other words, the restaurant absorbs a much larger share of the discount instead of getting the full amount back through its taxes.

Sison said the change becomes more significant when discounts are applied to promotional prices such as a 5% discount for using a certain credit card. The restaurant has already given something up to fund the promotion. Adding another mandatory reduction means the margin available to absorb the second discount gets even thinner.

The impact also varies widely across restaurants. Sison said senior customers account for about 6% of sales at Mama Lou’s, which he co-founded with his wife Crystal, while another restaurant may have about 36% of its sales from senior citizens.

A restaurant where seniors account for more than a third of sales has far more of its revenue affected by the mandatory discount than one where the segment represents only a small portion of transactions.

There are several ways restaurants may respond. They can take the hit on margins, raise prices, scale back promotions or decide that certain deals simply no longer work. Any of those moves could eventually affect customers, particularly if promotions become less attractive or restaurants have to charge more to protect margins.

“We are here to provide jobs, to pay our taxes, to do business. But we are not here to do the work or job of the government,” Sison told radar Business.

RestoPH is not calling for existing benefits to be removed, but wants new measures to account for the cost imposed on businesses. Sison warned that larger chains could have more room to absorb the costs because they operate more outlets and handle higher sales volumes, while smaller restaurants have fewer transactions over which to spread the same expense.

“The big players will continue to be bigger and the small players will be discouraged to open up businesses,” he said.

A policy intended to give consumers a bigger discount can therefore have a broader effect on the restaurant market. If operators respond by raising prices or pulling back on promotions, some of the benefit at the point of purchase could be offset by higher menu prices or fewer deals.

Sison’s position is that government can still expand support for seniors and persons with disabilities, but the funding mechanism needs to be considered alongside the benefit itself.

“A mandate without funding is not generosity. It is a cost transfer to other consumers,” he said.

Restaurants ultimately have only a few ways to absorb higher mandated costs. They can take the hit on margins, adjust their prices, scale back promotions, or reconsider certain offers. Whatever route they take, the industry is warning that the cost could eventually, unfortunately, reach the consumer.

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